Naming and Blaming

New evidence of financial sleight of hand in troubled skilled nursing chain

North Coast Journal graphicData from the state shows sharp rises in rent after Brius took ownership of five local skilled nursing facilities.

For as long as the public eye has been on the woes of Humboldt County's skilled nursing facilities, all but one of which are owned by the same company — Brius Healthcare Services — there has been a question of where to point the finger of blame. In the last month alone, Brius facilities have been slapped with $160,000 in fines from the state and two wrongful death complaints from a local attorney. Should culpability go to the local company that provides administrative services to the facilities, Rockport Healthcare Services? Who is responsible for the November death of Randy Kruger, who was allegedly neglected at Eureka Rehabilitation Wellness Center to the point where he developed a pressure ulcer the size of a fist on this tailbone? Is it Eureka Rehabilitation and Wellness Center, LLC? Or Eureka Rehabilitation and Wellness Center, LP? Or is it the man at the helm of all these companies — Shlomo Rechnitz — a skilled nursing mogul who owns 81 such facilities across the state, facilities that have been dogged by reports of poor care and understaffing?

Rechnitz is at the center of the civil lawsuit recently fileed by W. Timothy Needham of Eureka's Janssen and Malloy law firm which alleges that understaffing in two local facilities, Eureka and Seaview Rehabilitation and Wellness Center, led to the deaths of Kruger and another man, Ralph Sorensen. Kruger, 64, and Sorensen, 76, both died after untreated pressure ulcers became infected, according to Needham's complaint, which names the individual facilities, their affiliated LLCs, Rockport, Brius and Rechnitz himself as defendants accused of wrongful death, elder abuse and violation of patient rights. Representatives from the company did not return an email from the Journal regarding this issue by deadline, but in August of 2016 representatives from Rockport and Brius both insisted that Humboldt facilities were adequately staffed with traveling nurses at great impact to the company's bottom line, and threatened to close several facilities if the region's MediCal administrator — Partnership Healthplan of California — did not raise reimbursement rates.

Needham calls the corporate structure of the skilled nursing facilities — which care for some of the most fragile patients in the healthcare continuum, those needing constant medical attention and suffering from dementia — one of the most complex he's seen. In order to make his case Needham, will have to draw a straight line from the deaths of the two men to the deep pockets of Rechnitz, who may be profiting off taxpayer dollars from Medicare and Medicaid as patients like Sorenson and Kruger allegedly suffer due to inadequate care.

"We will be filing an amended complaint detailing the organizational structure of the skilled healthcare company and its affiliated entities," said Needham, who has 20 days from April 5 to file the amended complaint.

Needham's pursuit may well take him all the way back to 2010, when Janssen and Malloy triumphed in a suit against Skilled Healthcare Group, the previous owner of the facilities, alleging understaffing. The original jury verdict awarded $677 million in damages, but settlement talks whittled that figure down to $50 million, and an injunction in which the company would have to adhere to independent monitoring of staffing levels. Victory for the attorneys was short-lived at the time, as Rechnitz and his company Brius swooped in at the eleventh hour to buy the businesses. As a separate entity, Brius was not required to comply with the terms of county's injunction. The independent monitoring never happened. And Rechnitz's purchase from Skilled Healthcare dredges up another name: The Sytamar Foundation.

Established in early December of 2010, the charitable foundation's name is a mash up of Rechnitz's first initials, Shlomo Yehuda and his wife Tamar's first name. The 501(c)(03)'s listed purpose, according to financial documents, is to "provide assistance to other exempt institutions," but the timing of its formation and its lone transaction for that year suggests a different motive: to shuffle Rechnitz's investment in the Skilled Healthcare Group one level away from culpability. On Dec. 29, 2010, Rechnitz donated of 350,000 shares of common stock in the Skilled Healthcare Group, worth around $3 million, to his own foundation. Three months later Skilled announced it was turning over operations of its five Humboldt facilities to Brius, retaining the physical buildings but selling the operations to Rechnitz's company. Rechnitz issued a press release stating, "our company is looking forward to working together with the medical community in Humboldt County to deliver the excellent patient care Brius is known for. We're honored to have the opportunity to make a difference."

The Journal could not determine whether Rechnitz was an investor in the embattled group prior to the September 2010 settlement, or if his investment in Skilled tipped his hand in the later purchase, but if the Sytamar Foundation was an attempt to shuffle the deck, it was just the beginning.

The National Union of Healthcare Workers recently provided the Journal with a report generated from financial filings with the California Office of Statewide Health Planning and Development. Those reports include the amounts every Brius facility pays in rent, average employee turnover and nursing wages.

As verified by OSHPD documents, between 2010 and 2011, rents skyrocketed for all five Humboldt properties, jumping anywhere from 84 to 360 percent. In 2010, Skilled Healthcare Group, which owned the leases, paid itself $333,530 a year in rent for Eureka Rehabilitation and Wellness Center. Post-Brius buyout, the rent went up to $827,751. Altogether, between 2010 and 2015, the last year for which financial filings are available, rental costs for the facilities jumped by about $2.5 million.

Why? NUHW's report points to yet another name: Eretz Properties. Eretz is the Hebrew word for land, and every Humboldt County facility is connected to an Eretz Properties, LP, each of which was established by Rechnitz in 2011. As the middleman, Eretz subleases the properties back to Brius at an inflated rate. The Journal has requested copies of the lease and sublease requirements for these facilities from the California Department of Public Health.

Fred Seavey, research director at the NUHW, calls this system a "scheme" that Rechnitz has replicated for holdings throughout California.

"Across the state it's millions of dollars ... he's siphoning scarce healthcare dollars away from frail and elderly people ," said Seavey. "When you look at the terms of the lease and the sublease, we don't see anything that the middleman is doing that adds value to the relationship. The purpose is to siphon money and create an additional layer of legal protection. If you were to sue, you would have to fight your way through layers of LLCs."

As Needham prepares to do just that, the lone regulatory entity tasked with making sure Humboldt County's most vulnerable residents are safe and cared for may also see its day in court. After conducting an inspection of Eureka Rehabilitation and Wellness Center in December of 2016, the CDPH levied eight separate fines totaling $160,000 for deficiencies that included insufficient staffing levels.

Asked to comment in March, Amad Nazifi, vice president of operations for Rockport's Redwood Region office, emailed to say the company had taken corrective action to ensure appropriate care for residents and it was working on recruiting and retaining permanent staff.

"We strongly disagree with the citations issued against Eureka Rehabilitation and Wellness Center," the statement continued. "The citations are being appealed and we are confident that we will prevail."

Linda Stansberry is a staff writer at the Journal. Reach her at 442-1400, extension 317, or linda@northcoastjournal.com. Follow her on Twitter @LCStansberry.